Energy tax incentives add up: How schools can pursue big savings

Thanks to the savings generated by a new solar system, the Batesville (Arkansas) School District was able to do something remarkable — give teachers a raise.

Batesville used bond money to install 1,400 solar panels outside its high school. The system is able to power seven buildings, saving the district around $13,000 a month in utility costs. And the local utility provider credits the district for the energy its panels collect. In total, about $1.5 million has been redirected toward teacher pay.

Once ranked second to last for teacher compensation, Batesville now offers the highest salaries among districts in its region — because of a smart energy investment.

And Batesville isn’t alone. Across the U.S., more schools are turning to renewable energy and energy efficiency upgrades — not just to help the environment but to balance tight budgets, modernize aging buildings and reinvest in students and staff. With federal tax incentives, schools of all sizes can pursue clean energy projects with meaningful financial support.

For many administrators, the math is starting to make sense.

Why clean energy projects make sense for schools

For most schools, the decision to invest in energy-efficient upgrades starts with one simple truth: Every penny counts. Tight budgets and rising costs have forced administrators to find new ways to stretch dollars. For many, energy is one of the few line items with room to move.

But cost savings are only part of the equation.

Clean energy projects also offer schools a way to demonstrate environmental leadership, meet building regulations and reflect the values of their communities. In many cities and states, voters and caregivers are actively pushing for greener schools. Some cities require buildings to meet specific energy performance standards, including schools. That puts schools on the front lines of change — even though they may operate in aging, inefficient facilities.

There are also educational benefits to going green. Solar panels and energy monitoring tools can double as STEM learning opportunities, helping students explore science, sustainability and data analysis in real time. Some schools have even developed curricula around their energy systems, giving students hands-on experience with emerging technologies and careers.

And then there’s the simple fact that tax dollars are involved. Now that federal energy incentives are available to schools (including public and nonprofit institutions), administrators have a rare opportunity to reclaim those tax dollars in the form of direct payments through the Inflation Reduction Act. These incentives can offset a significant share of the cost of clean energy systems. That kind of ROI is rare in school operations — and worth exploring.

Energy incentives 101: What’s available to schools

Schools can access federal, state and local incentive programs — and combine them — to help offset the cost of energy-efficiency projects. Incentives are available for new construction and upgrades to existing facilities.

Most schools can benefit from:

Section 48, Investment Tax Credit (ITC) or Section 48E, Clean Energy Investment Tax Credit

The ITC allows schools to claim up to 30% of the cost of eligible clean energy projects, including solar panels, geothermal systems, battery storage and wind or biogas systems.

Bonus credits (often called “adders”) can increase that value. Each adder is worth 10% if a project meets certain criteria, such as using domestically made materials or being located in an energy transition zone or low-income community.

The key to maximizing savings is being proactive. Most credits have to be applied for before a system is placed in service, and eligibility for bonus credits may require documentation throughout design and construction. Schools that wait too long may miss out on savings.

Note that some incentives, however, are retroactive, so be sure to look into those for past projects as well.

Direct Pay for tax-exempt entities

Traditionally, schools haven’t benefited from tax credits because they don’t pay taxes. That changed with the Inflation Reduction Act, which created a Direct Pay provision. Now, public and nonprofit schools can receive the equivalent of a tax credit as a cash payment from the IRS. In many cases, that payment can be used as unrestricted cash, freeing up dollars for the general fund or to help pay down capital costs.

Section 179D, Energy-efficient building upgrades

Schools that upgrade lighting, HVAC systems or building envelopes may qualify for an additional deduction under Section 179D. While public schools don’t take the deduction directly, they can allocate it to their project’s designer or engineer to incentivize energy-efficient planning.

EV infrastructure and clean bus funding

While more limited in scope, additional credits are available for schools that invest in EV charging stations or electric bus fleets, including a 30% credit for EV charging infrastructure. Note that to qualify for the 30% credit, you need to be in a low-income community and meet prevailing wage and apprenticeship requirements.

State and local incentives

Many states and utility providers offer their own grants, rebates and low-interest financing programs. For example, Wisconsin’s Focus on Energy program offered the Black River Falls School District a $13,500 rebate for its solar array. The district combined the local rebate with the 30% ITC credit, saving nearly $100,000 on a $290,000 project.

Prerequisites: What schools should know before moving forward

Schools have unique considerations that can affect the timing and financial outcome of energy-efficiency projects. Understanding these details early can help administrators plan effectively — and maximize the incentives their schools receive.

• Fiscal year versus calendar year: Most tax credits operate on a calendar-year basis, while most schools align their fiscal years to the school calendar. This mismatch can affect the timing of Direct Pay filing or when they receive payment from the IRS. Schools need to understand the cash flow impact and plan carefully if there’s a delay between project completion and reimbursement.
• Upfront costs and financing: Even with generous incentives, clean energy projects require significant upfront investment. Federal tax credits (or Direct Pay reimbursements) only arrive after the project is complete and filed with the IRS, which means schools have to cover the costs in the meantime. To do that, schools typically rely on general funds, capital budgets, bond financing or restricted accounts. Some of these funding sources may require school board or community approval, which can extend timelines and complicate the process. Make sure you understand the impact of these funding sources, too. Some types of financing can cause a reduction of the credit, so managing financing sources for the energy system is critical.
• Policy uncertainty: Schools may wonder if federal energy incentives will disappear. The funding landscape, in general, is uncertain. But there’s good news: The ITC is part of the tax code, which means it can only be changed by an act of Congress. Even then, tax law changes usually come with phaseout periods or safe harbor provisions that preserve credits for projects already in motion. As of now, credits for 2025 are secure, making this an ideal time to act.
• Bonus credits require homework: Schools hoping to qualify for ITC “adders” should know they require early documentation and sometimes preapproval. Do your homework. Being proactive can mean the difference between a 30% tax credit and a 50% one.

Next steps for schools

Whether your school is planning a major renovation or just looking to reduce utility costs, take these steps to maximize your savings with energy incentives:

1. Get your team involved early.

If you’re planning new construction or capital improvements, get your full team involved early, including architects, contractors, finance staff and tax partners. Many federal incentives, such as those tied to prevailing wage or domestic content requirements, need to be verified throughout design and construction — not after the fact.

Early coordination helps ensure your project is eligible for the maximum credits and has the right documentation from day one.

2. If you’re not building, start with an energy audit.

Did you know you don’t have to undertake a capital project to qualify for energy tax incentives? To find out what you qualify for, start with a free or low-cost energy audit.

Many state programs offer audit services tailored to schools. These assessments can identify areas for improvement, such as lighting, boiler systems or HVAC units, and help you prioritize projects based on cost savings and available incentives.

An energy audit can also help you right-size your investment. Many schools jump straight to solar without reducing their energy load. But by improving efficiency first — for example, by replacing outdated lighting or upgrading controls — you may be able to reduce your overall energy needs. That means you can install a smaller, more cost-effective solar array.

An energy audit can help you develop a broader strategy to lower your environmental footprint— and project costs — versus relying on a standalone solution.

3. Designate a small internal team.

Appoint a small group of staff to explore energy upgrades and incentives, including representatives from facilities, finance and administration. This team can champion projects, coordinate with outside partners and build buy-in across the district.

4. Engage trusted partners.

You don’t need to navigate this process alone. Energy consultants, CPAs and tax advisors with experience in the Inflation Reduction Act, solar providers and utility partners can help with assessments, modeling and incentives. Many solar providers offer free proof-of-concept studies that estimate savings, payback periods and system size based on your current energy use.

Engaging experienced partners early can help you make informed decisions, line up funding and capture the full value of available incentives.

How Wipfli can help

Energy tax incentives offer significant financial benefits — if you know where to start. We do.

Contact us for a free estimate of what incentives you qualify for and how much.

By planning ahead and working with the professionals at Wipfli, you can also reduce the upfront cost of energy investments and build long-term operational savings into your budget. We can help you evaluate investment strategies, maximize available incentives and adapt to regulatory changes as they unfold.

Don’t leave money on the table. Contact us to see what you qualify for or visit our energy incentives page to learn more.